Good morning, ladies and gentlemen, and welcome to the Slate Grocery REIT's First Quarter 2025 Financial Results Conference Call. At this time, lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, May 6th, 2025. I would now like to turn the conference over to Ms. Shivi Agarwal, Manager of Finance. Please go ahead.
Thank you, Operator, and good morning, everyone. Welcome to the Q1 2025 Conference Call for Slate Grocery REIT. I am joined this morning by Blair Welch, Chief Executive Officer; Joe Pleckaitis, Chief Financial Officer; Connor O'Brien, Managing Director; Allen Gordon, Senior Vice President; and Braden Lyons, Vice President. Before getting started, I would like to remind participants that our discussion today may contain forward-looking statements, and therefore we ask you to review the disclaimers regarding forward-looking statements as well as non-IFRS measures, both of which can be found in Management, Discussion, and Analysis. You can visit Slate Grocery REIT's website to access all of the REIT's financial disclosure, including our Q1 2025 Investor Update, which is now available. I will now hand over the call to Blair Welch for opening remarks.
Thank you, Shivi, and hello, everyone. We are pleased to report positive first-quarter results for Slate Grocery REIT. Our team's strong leasing volumes at double-digit rental spreads are continuing to drive healthy net operating income growth for the REIT. Adjusting for completed redevelopments, same property net operating income increased by $6.8 million, or 4.3%, on a trailing 12-month basis. The REIT completed over 220,000 sq ft of total leasing throughout the quarter. Notably, renewal spreads reached a new record high of 17% above expiring rents, and new deals were completed at over 22% above comparable average in-place rents. Portfolio occupancy remains stable at 94.4%, and our portfolio average in-place rent at $12.72 per sq ft remains well below the market average of $23.85 per sq ft, providing significant runway for continued rent increases.
The REIT has only $179 million of debt maturing in 2025, representing less than 13% of the REIT's total debt. After quarter-end, the team financed over $17 million of debt at attractive terms, and productive discussions are already underway to address the REIT's remaining 2025 debt maturities. Importantly, the REIT's current portfolio valuation continues to provide significant positive leverage and embedded NOI growth. We continue to have great conviction in the ability of grocery-anchored real estate to perform in today's economic environment. High construction costs and tight lending conditions continue to limit the pace of new retail development and overall retail availability. While evolving global trade policies have introduced some economic uncertainty, tariff-driven increases in construction costs only further increase the elevated replacement costs for new retail development.
This ultimately reinforces the value of existing well-located centers and provides a favorable environment for landlords to retain existing tenants and achieve substantial increases in rent. We believe leading grocers are also well-positioned to withstand potential impacts of tariffs, given a vast majority of grocery goods are sourced domestically. Grocers are highly sophisticated and agile operators who can effectively manage fluctuations in the cost of their goods. Grocery-anchored retail remains well-positioned, and we believe favorable fundamentals in the grocery-anchored sector, coupled with below-market rents in our portfolio, will enable the REITs to continue to grow revenue and generate long-term value for our unit holders. On behalf of the Slate Grocery REIT team and the board, I'd like to thank the investor community for their continued confidence and support. I will now hand it over for questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star four or the one on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to cancel the request, please press star four or the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Brad Sturges from Raymond James. Please go ahead.
Just on congrats on a pretty strong leasing quarter, you know, still strong momentum in terms of the rent spreads you're achieving. I'm curious if that momentum is continuing on into Q2 and if you've seen any notable change, I guess, in leasing demand in light of some of the macroeconomic uncertainties that have been present over recent weeks.
Hey, good morning, Brad. You know, I think we continue to see consistent demand for our space. I think that's coupled with the low in-place rents that we have and the high construction costs. You know, we do not see that changing. I think our grocers are very well-positioned to weather the tariff storm, whatever that may be, and other non-grocery tenants want to be around that activity. I can pass it over to the team to talk in more detail if you wish, but we're even seeing, you know, if you're kind of referring to retail headwinds and some tenant bankruptcies, we're seeing significant activity from other retailers buying leases out of bankruptcy to keep those rents in place. From a landlord perspective, you know, it creates solid demand. You know, we don't see, you know, that backing off anytime soon what we've been able to achieve.
Yeah, I mean, just to add to that, we've had multiple opportunities with, in regards to the bankruptcies, the spaces that we've received back, we've had a significant opportunity to mark those spaces to market. We see that as opportunities across the portfolio if and when we receive those spaces back.
I guess in the quarter, the occupancy did dip a bit due to a bankruptcy at Mid Valley Mall. Just curious if you could comment on the type of tenant and sort of the opportunity for, as you said, capturing the uplift and to market rent at that space.
Yeah, that was a big lot there at Mid Valley. Again, going back to my earlier comment, our portfolio is significantly under market rent, and that's where we're seeing those opportunities as being able to mark those spaces to market. We see that as another opportunity there.
In most cases, Brad, what we're able to do is significantly increase the rent if we actually get the space back, or we did. You know, we were in an auction, I think, a couple of weeks ago, and Dollar Tree and Burlington picked up 60 leases from landlords in the auction. Like, we are trying to get our space back. We're trying to increase that rent. We haven't had a situation where the rent's ever gotten lower. It's really an interesting time in the market.
I guess if you get the space back, you know, would that require some CapEx? Are you reinvesting in the box to capture that full market sort of uplift or?
Great question. You know, I think one of the reasons we really like the grocery-anchored space, you know, the types of assets that we have. The landlord works and tenant inducements are very, very reasonable. Over the last decade, we've been averaging about 8% of NOI below the line cost, and that includes everything. That's way different than enclosed malls or other types of high street retail. In addition, given the tightness of the market, you can be pretty aggressive as a landlord of not having to put much space. Real, real simple, what you'd be asked to do is kind of create the shell box, make sure the air conditioning is working, make sure the facade's okay, and any other kind of work over and above just basic landlord stuff is just negotiated in the rent.
Great. That's helpful. I'll turn it back. Thank you.
Thanks, Brad.
Thank you. Your next question comes from the line of Sairam Srinivas from Cormark Securities. Please go ahead.
Thank you, Alberta. Congrats, guys, on the quarter. Maybe just looking at the industry overall over there and opportunities ahead, are you seeing any acquisition opportunities there in the pipeline for you?
Morning, Sai. You know, I think what we're seeing is pretty interesting right now. You know, we've always looked at our portfolio, specifically grocery-anchored, as food distribution, and that hasn't changed. In good times and bad, the distribution of food is critical. Even in recessionary times, we've witnessed over the last couple of cycles, whether that's COVID, sales went up, GFC sales were stable, and we can go back even more decades, that, you know, non-discretionary items, people will actually increase their, you know, their purchasing of that. As it relates to, you know, what we're seeing in the industrial space, our grocers are talking to us more globally about talking about their distribution facilities or certain suppliers of food. You know, I think on the grocery space, it's such a vast market in the U.S. it's fractured.
There's still significant demand on the buy side, but I do think there'll be more opportunities. I'll pass it over to Connor. I'll talk about our pipeline, but it's pretty robust.
Yeah, thanks, Blair. I think the transaction pipeline, as you mentioned, continues to be quite robust. I think looking back at 2023 and 2024, transaction volume overall was a little bit down compared to historical norms. I think there was a lot of optimism going into 2025, and I've seen a lot of transactions, notably the ROIC acquisition by Blackstone, as well as some other individual properties. In terms of portfolio opportunities, I think there was a lot of optimism related to some more sizable deals getting done this year. I think it's yet to be seen how that will play out, but the liquidity and opportunity for one-offs continues to be quite liquid, just given the stability and cash flow nature of grocery-anchored properties.
Thanks for that, Connor. Maybe just looking at the financing of these opportunities, are you guys seeing any opportunity for forming further JV partnerships that you could kind of use to target these portfolios?
Yeah, I mean, I think there's significant interest in acquiring grocery-anchored assets as it relates to financing from the debt side. You know, the team did a great job last year of financing a significant amount of debt, and those were done at spreads consistent with, you know, five or ten years ago. Like, spreads for grocery, in our opinion, haven't really grown out. Obviously, the base rate has expanded, but we have a very attractive in-place interest rate, weighted average interest rate, and positive leverage. I think from our standpoint, or the REIT standpoint, you know, buying one asset is a binary risk for a lender. When you have a well-capitalized lender, like our borrower, like Slate Grocery REIT, you get a lot of comfort from the lenders, and we can access financing.
You know, I think there will also be interest from equity partners in the future. I think we're just being cautious, but our acquisition pipeline is substantial. You saw us in COVID, or the lockdowns COVID, we were pretty acquisitive on buying, you know, what we thought were wide or value deals. The team's since added value through those acquisitions, which has added, you know, value to the unit holders. I think we're continuing to look at those types of opportunities.
Thanks for the call, Blair. Maybe my last question is around the financing. A little bit, I think, $180 million of debt that remains on maturing for the rest of the year, including the JVs. Can you talk us through the thought process on refinancing that? I know you mentioned it's going to be towards the second half of the year, but, you know, how are you guys thinking about, you know, costs of funding, costs of financing there, and the thought process behind doing it later rather than sooner?
Hey, Sai, this is Joe speaking. Yeah, thanks for your question. In 2025, we have about $179 million of principal coming due, which is about 13% of our total debt stack. You know, we addressed a lot of our maturities at the end of last year. I would say the interest and appetite from lenders for grocery-anchored product is very strong. You know, for some of these loans right now, we're in advanced discussions, all very positive. Like Blair mentioned, the spreads that we're seeing right now haven't really changed from, you know, five, ten years ago. It's really the underlying risk-free rate that's moved. You know, looking forward to announcing some of those refinancings over the next few quarters, but things are going well from a refinancing standpoint.
Awesome. Thanks, Joe. Thank you, guys. I'll pass it on.
Thank you. Once again, should you have a question, please press star four or the one on your telephone keypad. There are no further questions at this time. I will now hand the call back to Ms. Shivi Agarwal for any closing remarks.
Thank you, everyone, for joining the Q1 2025 conference call for Slate Grocery REIT. Have a great day.
Thank you. This concludes today's call. Thank you for participating. You may all disconnect.